What are your aspirations?

Always start with your aspirations. Aspirations are the combination of vision, mission, values and priorities of your venture. Starting up a tech company is a huge personal undertaking that takes years and years to realize into something special. The odds are against you and the probability of making money are slim to none. So why are you doing it? Is it to get rich? Or is it to build something special? If the latter, do you feel that building it through an independent company is important? Or will you have a better chance of success building it under the acquirer’s umbrella? If you go with acquisition, will you be able to retain your team? Will you all continue to be motivated to reach for the stars, or will the venture turn into a job?

The aspiration lens is critically important, and should be the first lens used. But don’t be blinded by them. Aspirations tend to be very subjective and emotional in the startup phase. They become less so once you reach the expansion/growth stages where reality of scaling a business sets in. Time also becomes more of a burden at those stages. The more years you spend in your venture, the more you will want to bring it to some sort of a conclusion.

As founders, there are two distinct set of aspirations. (at least you need to make them so) Company aspirations and personal aspirations. The intersection of the two is where your personal aspirations are manifesting themselves through the company (in other words, your ambition). For a moment, you should separate the two. The company aspirations should take into account all the stakeholders, and their interests. Not just yours. Then examine your own personal aspirations. Are you looking to get rich? How much and how fast? Or are you looking to build a great product/service and be known for that regardless of wealth? And so on.

How good are the economics of the offer?

Then you move on to the economics of the acquisition. This should be pretty straight forward, but you should get the help of a lawyer who is experienced in early stage technology deals. The devil is in the details. Some acquisitions are straight forward (cash payment for all the assets and shares). Others are much more complicated (earn outs, employee lock-downs, reps and warranties, etc.)

Can you do better if you don’t take it?

The ultimate question is whether you can do better as an independent company. That path means taking an inordinate amount of risk and time, to get to a bigger and better outcome. All that, without a crystal ball, can get a bit tricky to analyze. But it was the path you had already decided to take before the acquisition offer. So what it really boils down to is whether you want to shrink the time to an exit with a high probability of the transaction being consummated… or whether you’re willing to take the long bet, and lower probability, of independence.

I can tell you that I went through the same experience about ten years ago. My partners and I had a very generous offer to acquire our very early company. We would have each received millions of dollars in cash and stock had we taken the offer. We decided to pass because we were on a high, and thought we would conquer the world and create a multi-hundred million dollar company. Fast-forward five years later, and we would have taken that same offer and would have been ecstatic. But it was too late.

Final thoughts

I think that in your first startup, you should be more inclined to take a smaller exit sooner. Then use that money to do another startup later, where you can take more time to build it according to your aspirations. Harder said than done. (and who am I to speak when I did the opposite when I was wearing those shoes!) But that’s the cruelty of experience and hindsight.

Each situation is different. So debate it with your founders, then sleep on it, then debate it some more… Then make a decision and move on it decisively and with no hesitation.